Sleeping Through a Revolution

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The Constitution is Not a Suicide Pact

Those words are variously attributed to Abraham Lincoln or Supreme Court Justice Robert Jackson. I think this quote is germane in light of yesterday’s White House Conference on countering Jihadist terrorism recruiting propaganda. The problems are clear.

“We’re being outdone both in terms of content, quality and quantity, and in terms of amplification strategies,” said Sasha Havlicek of the Institute for Strategic Dialogue, a London-based research organization, in a presentation at the meeting. She used a diagram of a small and large megaphone to illustrate the “monumental gap” between the Islamic State, which uses social media services like YouTube, Facebook and Twitter, and other groups and governments, including the Obama administration.

When I was in Paris a month ago, it was clear that the Charlie Hebdo assassins entrance point to the Anwar Al Awlaki network was through his You Tube channel of more than 7000 videos.


If the First Amendment fundamentalists feel we must give ISIS complete access to You Tube and Twitter, then we are living out Lincoln’s prophecy. I find it fairly ironic that Anonymous can easily take down Al Awlaki’s websites, but the U.S. Government wants to bring a knife to a gunfight.


Somehow our counterterrorism folks think the solution to our problems is to put out better anti-ISIS propaganda as if that could ever solve a problem. We have the capabilities to totally disrupt the Jihadist online propaganda infrastructure. We could request Twitter and You Tube to block ISIS propaganda in the same way they block child porn.

What are we waiting for?

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Letter From Europe

imageI have been in both Paris and London over the last few days and I would say that the mood here is extremely unsettled. There are two aspects to this unrest. The first is the specter of a kind of 1930’s economic malaise that combines both inflation and currency volatility. The decision yesterday of the Swiss central bank to stop defending the Swiss Franc’s rise against the Euro caused the Swiss market to fall 9% in one day and the Swiss Franc to rise 8% as local traders sold Euros. The general perception is that the European Central Bank is about to embark on a massive “Quantitative Easing” program in order to stop the deflationary trends that are evident everywhere in Europe (with the exception of the Central London property market driven by the influx of money fleeing Russia). The Germans of course cannot get the 1930’s Weimar image of people buying a loaf of bread with a wheelbarrow full of Deutschmarks, and so the thought of printing money to stop deflation fills them with dread.

The central problem of course is that the post 2008 crisis of deleveraging has not played itself out here in the way it has in the United States. In general U.S. Corporate balance sheets are in the best shape in half a century with some companies like Apple, Google and Microsoft having so much cash that they see very little investment opportunity beyond buying back their own shares. That the best Apple could do with its $120 billion pile was to buy a headphone company (Beats) for an inflated $3 billion tells you something. Many Eastern European companies borrowed from Swiss Banks to expand their natural resource and commodity production and now those prices are falling and they will have to repay the loans denominated in francs with devalued local currencies. For Russia the falling oil price has nothing but inflationary crisis signs everywhere.

In the shadow of this economic malaise lies Europe’s second crisis, the Islamic Immigration predicament. The ability of right wing parties in France, England, Germany and Holland to exploit the Charlie Hebdo terror attack will only make a bad situation worse. Here in London the unease with the whole EU project is being exploited by Ukip, the nationalist, anti-immigration party. The coming general election where five parties (Conservative, Labor, Liberal, Green and Ukip) split the vote could make forming a ruling coalition very tricky and could end up looking more like Israeli politics than the world of Winston Churchill. Somehow the French may once again emerge as a model of Liberty, Equality and Fraternity. I think the rallies of last weekend were a model of civility; where Muslims, Jews, Protestants, Atheists, Catholics marched as Citizens of the Republic in solidarity against the barbarity of the Jihadists.

For the U.S., it all has one clear message. We have managed our economy post 2008, far more responsibly than the Europeans, Chinese or the South Americans. Whatever anyone may think of President Obama, we are in a uniquely strong and delevered position in relation to the other world economic powers. But the message that Europe clearly sends is that zero interest rates alone cannot grow us out of the current global stagnation. It’s so clear from this vantage point that our dysfunctional political system needs to do two things in the next year. First, we need to take advantage of falling oil prices to pass a significant national energy tax. There seems to be growing consensus from both Republicans and Democrats alike that now is the time to do this. Then we need to take the billions from those tax revenues and invest them in a massive Marshall Plan to rebuild the crumbling American infrastructure, most of which was built in the 1930’s during the Great Depression. Not a day goes buy when some water main or gas pipeline doesn’t rupture in a major city. Our mass transportation systems are Third World and our bridges are cracking. Putting three million people back to work building this would be an added benefit.

From this perspective “across the pond”, it’s clear that the last 15 years of America playing the global cop in Dick Cheney’s Endless War has spent both our blood and our treasure in a Clash of Civilizations with blowback that we are still unable to contain. John McCain (and maybe even Hillary Clinton) want to continue this war, but my guess is that the average American knows that the task of taming Jihadism lies with the Muslim community itself. No amount of American firepower will bring an end to it and so we should take the opportunity of our new energy independence to pull back from George Washington’s dreaded “foreign entanglements” and rebuild our own republic.

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Welcome to the Age of Anarchy

I’ve been called by the BBC, Marketplace and Vanity Fair in the last 24 hours to comment about the Sony Hack. I find it rather ironic that all of a sudden the destructive power of hackers are front page news, when many of us have been saying for years that the anarcho-hacker culture was going to destroy the entertainment business as we know it. But now we can see that a single “super-empowered individual” (Tom Friedman’s term) can bring a $30 Billion corporation to its knees. I can imagine that the “Guardians of Peace” could be a single black hat hacker hired by the North Koreans sitting in his bedroom somewhere in China or Russia, threatening a new 9/11 attack on America movie theaters in broken english. The fact that the kid had no power to make his threats real is almost irrelevant.

One hundred years ago an earlier age of anarchy caused havoc in the world. From the Assassination of President McKinley in 1901 to the Assassination of Archduke Franz Ferdinand in 1914 which started the First World War, anarchists roamed the world and brought chaos to geopolitical arrangements. Big business men like John D. Rockefeller and Henry Clay Frick were so often targets of anarchist plots that a bodyguard became standard perk for high level executives.

But the Sony Hack is just the first wave in an unstoppable tsunami of super hacks that are to come as the Internet of Things becomes ubiquitous. As Sue Halpern points out, the possibilities to screw up your daily life are endless.

Even so, no matter what we do, the ubiquity of the Internet of Things is putting us squarely in the path of hackers, who will have almost unlimited portals into our digital lives. When, last winter, cybercriminals broke into more than 100,000 Internet-enabled appliances including refrigerators and sent out 750,000 spam e-mails to their users, they demonstrated just how vulnerable Internet-connected machines are.

Not long after that, Forbes reported that security researchers had come up with a $20 tool that was able to remotely control a car’s steering, brakes, acceleration, locks, and lights. It was an experiment that, again, showed how simple it is to manipulate and sabotage the smartest of machines, even though—but really because—a car is now, in the words of a Ford executive, a “cognitive device.”

The idea of a hacker causing your car to crash is not science fiction. Yesterday Drago Security reported that a major German steel plant was wrecked by hackers.

The BSI document states that a steelworks site was directly targeted using a very sophisticated spear phishing and social engineering method to gain access onto the office network of the facility. From there, the adversary moved into the production network which resulted in “massive damage to machinery.” They reported that failures became more frequent in the individual control components as well as the overall system and the failures resulted in the blast furnace not being regulated properly.

The rallying cry of the 19th Century anarchists was “property is theft”, which is of course the point of view of Pirate Bay and the other cyber criminals who have done their best to destroy the music business and are now turning their sights on the movie and television business. Its a continuum, from Pirate Bay to the Guardians of Peace. We decided that the nature of globalization was so seductive that to connect everything to a single network would change the world in wonderful ways. In many ways the globalists were right, but we are just beginning to understand the dark side of their techno-utopianism.

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Wake Up, Democrats


In the Kubler-Ross stages of grief, which began on the evening of the last election, the Democratic Party refuses to move out of stage 1:Denial. This map might help Democrats move on at least to Anger–“who is responsible for this disaster?” Today 146 Million Americans live in states controlled at both the legislative and executive levels by Republicans. By contrast 49 Million live in states with total Democratic control. The Republican majority in the House is the highest since the days of Herbert Hoover. The very notion that a demographic tidal wave of black, brown and youthful voters will sweep in Democratic rule in Washington DC is a fantasy that will not be realized for at least ten years, because Democratic voters are bunched in cities, while Republicans are spread out across vast numbers of more rural and suburban districts.

And yet contrast the political map, with this map of marriage equality.


Quite a difference. So its clear that state and local action on cultural issues like Gay Marriage get results, and yet Democrats keep thinking that all progress needs to come from the Federal Government. It is time for progressives to abandon this pipe dream and fight their battles in the state and city legislatures. Nothing good is going to come out of Washington DC for decades. The best we can hope is holding the Presidency to be able to veto the most egregious proposals of the Tea Party. Continue reading

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Panic Incorporated

Matt Drudge

Matt Drudge

I teach at the USC Annenberg School of Communication and Journalism and never have I been more embarrassed by the role of the News Media than watching them fan the flames of Ebola Panic in the last three weeks. Professor Roxanne Silver of University of California Irvine has been studying the crowd psychology of panics.

Ms. Silver studied and wrote about people who heavily consumed media after the bombings at the Boston Marathon in 2013 and “what we found is that individuals who were exposed to a great deal of media within the first week reported more acute stress than did people who were actually at the marathon.”

Much of the Ebola hysteria can be traced back to one man, Matt Drudge, who single-handedly has amped up the fear in both the political class and the mass media the follow him. Take this little bon bon posted last week on Drudge.

IMG_0390Drudge has a simple plan, which is that right wing politics works best in a climate of fear. This is where George Bush tricked us into invading Iraq and for Drudge Ebola is the last nail in the coffin of immigration reform.

In a few weeks when the Ebola scare is all over in America, we will look back at this moment and ask, “what were we thinking?”. But it’s not enough to just blame Matt Drudge. Every TV news producer in America is codependent with the Matt Drudge’s of the world. We all know that Drudge is a scummy little propagandist, but what excuse does Jeff Zucker at CNN have?


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Modern Monopoly

This week the IMF and the World Bank held their annual conference in Washington. The concerns for global growth that were expressed at the Conference echoed through the canyons of Wall Street leading to one of the most volatile weeks in recent stock market history. Former Obama economic advisor Larry Summers gave a speech that expressed much of the concern.

At a conference on Thursday, Lawrence H. Summers, the former United States Treasury secretary who now teaches at Harvard, highlighted this concern. “The defining challenge of our time, economically, is secular stagnation,” he said. “It is the risk of inadequate growth, leading to inadequate potential, leading to inadequate growth.”

I have been arguing for the past year that the source of this stagnation is lack of investment. A new breed of ultra efficient corporation is holding record amounts of cash on their balance sheet while having record low amounts of debt.

screen shot 2014-04-04 at 10.47.50 am.png

Why do Google or Apple have more than $100 billion in cash on their balance sheets? Because they operate in a framework of Monopoly (Google in search) or Duopoly (Apple and Google in mobile operating systems) capitalism that does not conform to the classic notions of market functionality.

John Bellamy Foster and Fred Magdoff, in their book The Great Financial Crisis, describe the work of the economists Paul Baran and Paul Sweezy on monopoly capitalism like this.

The problem, as they explained it, was that the enormous productivity of the monopoly-capitalist economy, coupled with oligopolist pricing, generated a huge and growing surplus, which went beyond the capacity of the economy to absorb it through the normal channels of consumption and investment.

My sense is that we are going to see more of these so called “Natural Monopolies”, where the network effect tends to create a winner take all outcome. Google in Search, Amazon in E Commerce for Books, Facebook in Social Networks and potentially Comcast in Broadband service, all seem to have a kind of insurmountable scale advantage against late entrants. Libertarians like Peter Thiel love both the monopoly profits and the absence of anti-trust regulation. But I think it is fairly naive to assume that new competitors are going to spring up and so we may have to re-envision a kind of anti-trust regulatory policy to ensure that these new monopolies don’t abuse their position.

On Tuesday October 14 at 5 PM PDT, I’m going to be guest hosting Ian Master’s Background Briefing radio show on Public Radio. I’m going to interview three brilliant experts who have wrestled with these issues. Attorney Bob Kohn has written about Amazon’s recent battle with book publisher’s, MIT’s Ethan Zuckerman is thinking about Google and the world of advertising on line and John Bergmayer of Public Knowledge has led the fight against Comcast.

It should be interesting.

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No Bad Culture


I’ve been having a lively discussion with my colleague Henry Jenkins, occaisioned by A.O.Scott’s recent essay in the Times entitled, The Death of Adulthood in America Culture, and Frederik DeBoer’s trenchant response. Scott is of course trying to exercise the traditional role of the arts critic, depicting the difference between the real deal and the second rate. Here he narrates the descent from the young rebels of the 1950’s (as depicted by the critic Leslie Fiedler) to the Bro rebels of our contemporary age.

The bad boys of rock ‘n’ roll and the pouting screen rebels played by James Dean and Marlon Brando proved Fiedler’s point even as he was making it. So did Holden Caulfield, Dean Moriarty, Augie March and Rabbit Angstrom — a new crop of semi-antiheroes in flight from convention, propriety, authority and what Huck would call the whole “sivilized” world.

From there it is but a quick ride on the Pineapple Express to Apatow. The Updikean and Rothian heroes of the 1960s and 1970s chafed against the demands of marriage, career and bureaucratic conformity and played the games of seduction and abandonment, of adultery and divorce, for high existential stakes, only to return a generation later as the protagonists of bro comedies. We devolve from Lenny Bruce to Adam Sandler, from “Catch-22” to “The Hangover,” from “Goodbye, Columbus” to “The Forty-Year-Old Virgin.”

But of course like any critic of contemporary pop culture, Scott is carefully defensive lest he would be categorized with the “get off my lawn, kids” crowd. Continue reading

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Capitalism Vs. Competition

Peter Thiel is one of our smartest investors. He helped build Pay Pal and was the first real outside investor in Facebook. He’s also an uber libertarian. He has a plan to build islands outside the range of any government to house his enterprises. He’s about to publish a book which says that we should embrace monopoly digital capitalism.

Nevertheless, devaluing competition is a central theme of Thiel’s new book. He asserts that “capitalism and competition are opposites,” because “under perfect competition, all profits get competed away.” He exhorts entrepreneurs to seek out monopolies, concluding, “All happy companies are different: Each one earns a monopoly by solving a unique problem. All failed companies are the same: They failed to escape competition.”

I wrote, what for me was a fairly scholarly article on this idea of digital monopoly capitalism last spring. But now I realize why Thiel and Sergey Brin and Mark Zuckerberg are libertarians. They like monopolies like Facebook and Google and they don’t want the government regulating them. It may very well be that certain types of digital firms are natural monopolies. The contrast with the movie, TV or Music business, where there is ample competition, couldn’t be more stark.

This tends to be the case in industries where capital costs predominate, creating economies of scale that are large in relation to the size of the market, and hence creating high barriers to entry; examples include public utilities such as water services and electricity. While in other situations a monopoly can lead to restricted output, higher-than-necessary prices, and production that is inefficient (at higher average cost) than would occur with many producers, a firm that is a natural monopoly produces at lower average cost than would be possible with multiple firms.

Certainly one could argue that both search engines and Broadband ISP’s fall under this model. At the start of the American communications revolution we decided that both telegraph and telephone services were natural monopolies, because having hundreds of wireline providers was ridiculously inefficient.

New York City-1890

New York City-1890

What we did do was regulate both Western Union and AT&T. The result was an age of extreme innovation. As I have written before, all you have to do is look at the AT&T Research Lab during it’s most regulated era.

Bell Labs was a subsidiary of the monopoly telephone company, A T & T. Because A T & T didn’t have to spend billions on advertising (A T & T spent almost $2 Billion last year), they could dedicate a huge budget to their R & D Lab. As written in The Idea Factory: Bell Labs and the Great Age of American Innovation  the transistor, the microchip, the solar cell, the microwave, the laser, cellular telephony all were invented along with myriad other things we take for granted.

As a society we are going to have to decide fairly soon whether Comcast, Google, Facebook and Amazon are some sort of natural monopoly that needs to be regulated or whether we are going to pretend that competition and capitalism can exist in harmony in the digital age. Peter Thiel knows that’s a fantasy, but do the regulators in Washington?

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Shiny New Object


I was asked to speak at a meeting of media, entertainment and technology professionals on Saturday. I gave a presentation that I call Cloud TV that envisions a world of TV on demand delivered over ultra high speed fiber optic IP networks. I noted that there is no technological barrier to this vision and that we work with a public utility in Chattanooga that has deployed a one gigabit symetrical network. I expressed the sentiment that the reason we have so much crappy reality TV is that programmers need to fill up the endless hours on the 500 channels of cable TV. I realized there were probably a good number of cable TV execs in the audience, but what the hell, it was Saturday morning.

Near the end of the presentation I posed one problem that I thought we had to tackle–I call it the discovery problem. In our experience observing the Disney Movies Anywhere App, most of the customers download the latest hit, Frozen and very few take the time to look at the old classics like Dumbo. I noted that in the music business, 80% of the downloads are for 1% of the content. So it turns out The Long Tail is a total myth. I expressed concern that we were experiencing a kind of cultural amnesia by neglecting the incredible wealth of wonderful movies, TV and music created in the last 80 years.

When I finished, the moderator of the event came up on stage to take the Q & A and he asked the first question, “Why should we care about Dumbo, it’s an old movie?” I’ve given this presentation a lot of times before, but I had never been asked that knucklehead question. So I replied, why should we care about Leonardo DaVinci, Picasso or Louis Armstrong’s work? They are all dead. Why should we have museums? I saw a little light go on in his eyes as he said, “good point”. Later a friend who was in the audience wrote me saying that the moderator’s pov demonstrated the “shiny new object” phenomenon in all its superficiality. He’s right. Look, I’m going to pay attention to the I Watch launch on Tuesday, just like you are. But it won’t define my day, my week or my life. Not everything has to be new to be relevant and yet it is getting harder and harder to get folks to watch or listen to the past masters. I don’t have any idea how to deal with this problem, but I do think it is a problem.

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